jo12, I'm assuming that the $4,000 was all contributed for 2019. You apply the excess $500 to 2020 by contributing $500 less to your HSA for 2020 than you would otherwise be eligible to contribute. By doing so you'll still pay income taxes and a 6% penalty on the $500 on on your 2019 tax return, so, assuming, say, a 22% federal tax bracket, an 8% state tax bracket and a 6% penalty, it could still end up costing you something like $180 over correcting the excess by a return of excess contribution before the due date of your 2019 tax return. It makes no sense to me that you would not correct the excess by a return of contribution before the due date of your 2019 tax return.
